CU Employee Community Chair

In this session, Nate Derby, CEO Stakana Analytics discusses the value of member centricity and analytics in the growth of a credit union. He discusses the following aspects-

  • What is Member centricity and what it is not?
  • Why is product centricity vulnerable in this competitive consumer environment?
  • Why member centricity has an advantage?
  • Brand equity versus Member equity.
  • Membership Lifetime Value (MLV).
  • Member Relationship Management (MRM).
  • Examples from different industries.    

1. What is Member centricity and what it is not?

Member centricity is not the fact that all members are always right. It is the fact that the right member is always right. Hence, your most valued members (MVM’s) should be the ones where your maximum focus lies. The MVMs are your priority and then comes everyone else.

Your financial products should be aligned towards the needs of these Most valued members.

This also implies that there is a need to create as many MVMs as possible, and some of these members would not be MVMs right now. There is a need to find, create and attract more MVMs.

This is a long-term strategy and cannot happen right away.

For this process, data is the key. It allows us to

  • Identifying, tracking, and forecasting your MVMs.
  • Engaging the MVMs.

There are some companies which heavily use analytics for member centricity. Amazon.com, Netflix, Harrah’s, Capital one, Coast capital savings and  Nordstrom/Starbucks.

2. Why is product centricity vulnerable in this competitive consumer environment?

Product centricity is focusing on the member and not on the product. The key for a credit union is-

  • To gain a strategic advantage based on the product.
  • To bring in growth with an increase in volume, because members will be attracted if they see a superior product.
  • Constantly strengthen and diversify your product portfolio.
  • Your brand equity is the value in the brand. ( Coca-Cola is one ultimate brand equity).

The product-centric organizations end up being vulnerable because -

  • Members get what they want instantly and go the branchless.
  • Competition from other regions ( Big banks) .
  • Competition from technology.
  • Product centricity approach favors large or technical organizations.

3. Why member centricity has an advantage?

Some opportunities that lay with member centricity include -

  • Members want local and personalized services.
  • Compete against other members and technology.
  • Member-centric approach favors smaller and personal organizations. ( Credit unions are best suited.)
  • Using technology to extend our services.
  • Hence, member centricity is a strategy that aligns a credit union’s development and delivery of its products and services with the future needs of a select set of members to maximize their long-term value to the credit union.

However, some organizational challenges of member centricity include -

  • Members cannot be treated equally. ( Some members deserve a little more focus than others). We need to retool our research and development. Rework our metrics. Rethinking operations and marketing. We need to identify the right members. These are members who will contribute to the credit union in the long term.
  • Member centricity requires investment. We need to collect, analyze, re-analyze our member data constantly. Especially when the customer behavior is continuously changing. Acting on data should be a priority. Be responsive to the behavior.
  • Member centricity delivers sustainable growth. It is more about member acquisition, retention, and development.
  • Other members are thought of as low hanging fruit. But that’s not right. Data should guide us. They can become future best members.

4. Brand equity versus Member Equity

Brand equity and member equity are two measures of value.

Brand equity is the value from the brand. Coca-Cola is one such example. It has high brand equity. It is more celebrated for product-centric companies.  The definition is nebulous- how do we define the value?

Member equity, on the other hand, is the value from our members. It is suited for member-centric organizations, like a credit union. It is the sum of member lifetime values across all members.

Credit unions get more value from member equity since they have customized products and they have long-term member relationships. They sell services and easily sell member data.

5. Membership Lifetime Value (MLV)

Member lifetime value is the value from our members. It is the present value of the future cash flows of a member.  It is predictive and a forward-looking concept. The calculation varies for different organizations.

What can we do with MLV?

  • It keeps us focused on the right members.
  • Estimates what members our worth.
  • Targeting the desired members.
  • Prediction of certain member behaviors.
  • Efficiently use resources for member acquisition, retention, and development.

Calculating Member lifetime value.

 

Tip - Please avoid using averages. It defeats the concept of member differences.

Difficulties in calculating MLV -

  • Do not make generic mathematical assumptions. Instead of enticing members to stay on, weed them out, and focus on the rest.
  • How do we define when our member has left? It should be around when they decide to close an account, in fact, most don’t even close it. The moment when he decides to be inactive and leave. It is not defined. It can be done through analytics.
    • Look at a normalized activity.
    • Look at recency/frequency.

Role of statistical forecasting

  • Member acquisition- members seeking out a new financial institution.
  • Member retention- members with the highest risk of leaving soon.
  • Members development- members who will soon need a financial product.

You should be able to maintain the high value and low attrition risk members, cultivate low value and low attrition risk members, aggressively retain high value and high attrition risk rate members and divest low value and high attrition risk members.

6. Member Relationship Management (MRM)

Role of member relationship management-

  • They bring member centricity to life.
  • Members want personalized service. MRM allows doing that with member data.
  • What messages should be sent, what is the right channel? These answers help to operationalize MLV.
  • Provides infrastructure to consistently and regularly the right members, estimate individual MLV and segmenting members into right groups.

The key challenge that MRM involves is that it depends on how you are using the MRM. It should be used in the most strategic, smartest manner possible. It is not an IT tool.

Some advice that can be given to use MRM are as follows -

  • The goal should be to enhance individual member relationship with each member.
  • Focus on the members. Not IT systems.
  • Understand member behaviors so that our efforts are effective.
  • Celebrate Heterogeneity in member base.

The four tenets of member centricity include -

  • Get an enormous economic advantage by recognizing heterogeneity among members.
  • Focus marketing on members who generate the greatest long-term value.
  • Determine how much to spend on each member by determining MLV.
  • Leverage more information about members by building MRM initiative.

           If we fail to account for unique characteristics of our members, we are wasting opportunities for greater long-lasting success. This is particularly valuable for credit unions who are already local and personal. Member centricity increases effectiveness.

7. Examples from different industries.

AMAZON.COM

It functions with complete customer centricity.

  • Personalized recommendations.
  • It incorporates buying and browsing, website browsing, listening /watching, and physical tracking.

NETFLIX

  • Personalized recommendations.
  • Data-driven original content.
  • Personalized desist letter.
  • Incorporates browsing.

HARRAH’S ( 1997)

  • Consistent experience at all their casinos.
  • Personalized service.
  • Rewards program.
  • Incorporates playing behavior.
  • Much better ROI than upgrading facilities.

COAST CAPITAL SAVINGS

  • Personalized offers.
  • Analytics augmented with judgment.
  • Incorporates transactional behavior.
  • Tested locally before expanding.
  • Don't try to do too much at once. Find one or two good problems to solve.

This video is informative for credit unions since their needs are long term based and one of the key factors which help them fulfill this need is member centricity. Nate, although emphasizing on member centricity, also talks about aligning member centricity with analytics and understanding the diverse impact.

 

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